Malcolm ZoppiSun Oct 15 2023

Employment Contracts: The Three Key Requirements For Employers

Learn about 3 key requirements for an employer to have in an employment contract.

Every employment relationship is defined by the contract of employment. The employer has strong bargaining power in dictating what that relationship will entail, however, there are certain things that the law will expect an employment contract to have, and these are requirements that an employer cannot change.

What are the 3 key requirements for an employer to have in an employment contract?

Payments when not at work

An employer is required to allow their employees 5-6 weeks holiday each year, which the employee is entitled to be paid for.

An employer is also required to offer some sick pay for their employees, which means that while they cannot come to work because they are unwell, they will still be paid. The minimum you must pay your employee is £96.35 a week, for at least 28 weeks of the employee’s sick leave. This is only applicable when:

  • the sickness lasts for more than 4 days;
  • the employee earns over £120 a week; and
  • they gave you notice.

Otherwise, if the sickness is for 3 days or less or the employee normally gets paid less than £120 a week, you do not need to pay the employee for their time off.

Furthermore, an employer will have to pay maternity and paternity leave. The statutory maternity leave is payable for 39 weeks. The first 6 weeks will be paid at 90% of the average weekly earnings, the next 33 weeks will be paid at 90% of the average weekly earnings or £151.97 (whatever is lower).

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Remember, now the other parent can take Statutory Shared Paternity Leave. Shared Paternity Leave means that both parents will have a combined 50 weeks to take off and a total of 37 weeks pay to receive. This can be split however the parents like, but the pay will be the lower of £151.97 or 90% weekly wage.

This means that as an employer you will need to factor into the salary of all employees the fact that while one is on holiday/ off sick or on maternity/ paternity leave, you may need someone to cover for them, and therefore for that shift, you will be paying 2 people.

Contributions

As an employer, there are certain contributions that you have to make beyond your employee’s salary. The two main ones are pension contributions and national insurance contributions.

If you have a pension scheme that automatically enrols all employees, then as an employer, you must contribute a minimum of 3% of your earnings into the employee’s pension. This amount could vary depending on the specific scheme. If your employee voluntarily enrols in a pension scheme then you will have to pay 3% of their earnings into that scheme if they earn more than £520 per month; £120 per week or £480 over 4 weeks.

As an employer, you may have to pay national insurance contributions for each employee you have. However, this will depend on the bracket the employee falls into.

  • If your employees earn more than £967 per week, regardless of what band they fall into, you as their employer must pay 13.8% of their earning total to their national insurance contribution.
  • If your employee earns less than £170 per month, you will not have to make any national insurance contribution for them.

If your employee earns between £170 and £967 then you will have to pay 13.8% of their wage, as a national insurance contribution. This applies only to those employees listed below, as they fall into the payable categories:

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  • Category A (includes those listed below and the apprentice’s under 25; employees under 21 and employees under 21 who can defer National Insurance because they’re already paying it in another job).
  • Category B (Married women and widows entitled to pay reduced National Insurance)
  • Category C (Employees over the State Pension age)
  • Category J (Employees who can defer National Insurance because they’re already paying it in another job)

Termination clause

If you want to dismiss your employee, then you must give them the minimum statutory notice period. This is the period in which you must pay them before the contract will officially end.

For employees that have been working with you for more than 1 month but less than 2 years, you must give them one week’s notice. You must pay them at full pay.

For employees that have been working for more than 2 years, you must give one week’s notice for every full year they have been working with you. 12 weeks is the maximum that you have to give. You must pay the employees full salary during this period.

During the notice period, you can choose to have the employee continue to work or you can ask them to take garden leave, which means the employee does not have to come into work but must continue to be paid. This is entirely a commercial choice, for example, if they would be exposed to confidential information during this period you may feel like it is safer to have them not come to work during their notice period.

Therefore, it is always important to ensure that the employment contract is compliant with these statutory minimums.

Disclaimer: This document has been prepared for informational purposes only and should not be construed as legal or financial advice. You should always seek independent professional advice and not rely on the content of this document as every individual circumstance is unique. Additionally, this document is not intended to prejudge the legal, financial or tax position of any person.

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